US v. Stockman: Number of Documents Up, Remaining D&O Insurance Down

What's going on in the David Stockman case?  Sixteen or so months after the indictment, there is still no trial date and the parties are sweltering in more than 12 million documents.  As for the D&O policy, the fourth and last tier has been exhausted.  That insurance spigot has run dry.

A status conference was held on July 24.  Stockman's team, headed by Elkan Abramowitz (Morvillo, Abramowitz), made the case for delaying the trial selection date.  Abramowitz noted that the case looked to involve more than 12.5 million documents and that although there had been 29 to 32 lawyers reviewing the documents for six months, they had not yet finished examining one third of the materials.  As he noted:

• I would urge you not to fix a trial date today.  We are nowhere near ready to say that we could -- we're ready to try this case.  And even if you arbitrarily put it a year from now, it won't make -- it's not a realistic -- it's not a realistic judgment on your Honor's part.  It wouldn't be, because we're in no position to say that we've got a handle on what we're doing here, so I couldn't -- I really urge you not to do that.
  

The argument convincing, the trial judge did not set the date.  As part of the argument, Abramowitz gave some insight into the defense that he was developing for trial.  

• This is not a standard securities fraud case.  This is an unusual one, not only in the size and scope of the documents, that certainly makes it unusual, but most of the time, cases deal with established fraudulent acts and the defense is, generally, I didn't know about it or I didn't do it.  This case deals more often than not with situations where the facts are there and the facts happened, but where our -- our defense is, there is no crime here, that the accounting principles that are enunciated in the indictment and the accounts re -- the factoring principles that are enunciated in the indictment, the disclosure principles that are dicussed in the indictment and the particular transaction called the Joan Transaction, we -- our defense is those were pefectly legitimate transactions and that the fraud that's alleged is essentially saying that the accounting standards that were used were not the correct ones.

It has also become clear that the concern raised by Solomon Wisenberg (Wisenberg & Wisenberg), counsel for Paul Barnaba, about the burn rate of the D&O insurance has in fact come to fruition.  Abramowitz noted that the issue of reimbursement was "getting to be a very serious problem."  The policies were "going to run out in a matter of weeks; not months, weeks, for all of us."  Wisenberg indicated more specifically that the "fourth and final layer carrier has informed us that -- basically, not to assume there's going to be any money after invoices submitted on July 31st . . . "  Craig Stewart (Arnold & Porter), counsel for Cosgrove, another defendant, indicated that his client lacked the funding "to continue having us represent him as it stands, and that will be true as soon as the insurance money runs out."  As a result, he might have to return to the court to ask that Cosgrove "receive appointed counsel because he simply would not have the money to retain private counsel, givne the socpe and scale of this case, to defend it."    

The depleting policies was a factor in Barnaba's argument for severence and an earlier trial date.  Although the judge hasn't ruled on the motion (specifically reserving decision), Barnaba may get his wish.   The government conceded that it was considering a superseding indictment.  "If we do supersed, I imagine there will be a motion or motions for severence, and your Honor may be inclined to grant those motions.  And if that's the situation, we may not oppose in that particular situation." 

 A transcript of the hearing and other materials on this case can be found on the DU Corporate Governance website.